A protection racket is a scheme whereby a group provides protection to businesses or other groups through violence outside the sanction of the law. Through the credible threat of violence, the racketeers deter people from swindling, robbing, injuring, sabotaging or otherwise harming their clients. Protection rackets tend to appear in markets where the police and judiciary cannot be counted on to provide legal protection, either because of incompetence (as in weak or failed states) or illegality (black markets).

Protection rackets are often indistinguishable in practice from extortion rackets since, for the latter, there will be an implied threat that the racketeers themselves may attack the business if it fails to pay for their protection. In an extortion racket, the racketeers agree simply to not attack a business. In a protection racket the criminals agree to defend a business from any attack. Conversely, extortion racketeers will have to defend their clients if threatened by a rival gang to avoid the client transferring their allegiance.

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A protection racket is an operation where criminals provide protection to persons and properties, settle disputes and enforce contracts in markets where the police and judicial system cannot be relied upon.

Protection racketeers operate mostly in the black market, providing buyers and sellers the security they need for smooth transactions.

Two elements distinguish racketeers from legal security firms. First is their willingness to deploy violent retribution that falls outside the limits the law normally extends to civilian security firms, going as far as premeditated murder. The other element is that racketeers are willing to involve themselves in illegal markets.

A protection racketeer cannot tolerate competition within his sphere of influence from another racketeer. If a dispute erupted between two clients (e.g. businessmen competing for a construction contract) who are protected by rival racketeers, the two racketeers would have to fight each other to win the dispute for their respective clients. The outcomes of such fights can be unpredictable, and neither racketeer would be able to guarantee a victory for his client. This would make their protection unreliable and of little value--their clients would likely dismiss them and settle the dispute by other means. Therefore, racketeers negotiate territories in which they can monopolize the use of violence in settling disputes.[1] These territories may be geographical, or they may be a certain type of business or form of transaction.[citation needed]

Sometimes racketeers will warn other criminals that the client is under their protection and that they will punish anyone who harms the client. Services that the racketeers may offer may include the recovery of stolen property or punishing vandals. The racketeers may even advance the interests of the client by forcing out—or otherwise hindering/intimidating—unprotected competitors.[2]

Protection from theft and vandalism is one service the racketeer may offer. For instance, in Sicily, mafiosi know all the thieves and fences in their territory, and can track down stolen goods and punish thieves who dare to attack their clients.

Protection racketeers establish what they hope will be indefinitely long bonds with their clients. This allows the racketeers to publicly declare a client to be under their protection. Thus, thieves and other predators will have little confusion as to who is and isn't protected.

Protection racketeers are not necessarily criminals. In A Short History of Progress, Ronald Wright notes on p.49, "The warrior caste, supposedly society's protectors, often become protection racketeers. In times of war or crisis, power is easily stolen from the many by the few on a promise of security. The more elusive or imaginary the foe, the better for manufacturing consent."

During the late medieval and early modern era in the Scottish Marches, local farmers would often need to make payments to the Border Reivers as a form of protection money to ensure they are not attacked. These agreements were called "Black mal", where "mal" was an Old Norse word meaning agreement. The word blackmail entered the English language in 1530 as a result, but the word's meaning has changed since.[3]

In Melbourne, Australia, Alphonse Gangitano ran a protection racket along the famous Lygon Street during the 1990s.

In Ciudad Juárez, Mexico, when the Mexican Drug War escalated in 2008, criminal groups like the Juárez Cartel saw their financial backbone threatened and began asking for protection money from businesses ranging from convenience stores to clubs and restaurants with the threat of burning down the business, kidnapping the owners or killing everyone inside with assault rifles.[5]

In post-Soviet Russia, law enforcement was too underfunded and poorly trained to protect businesses and enforce contracts. Most businesses had to join a protection racket (known as a krysha, the Russian word for "roof") run by local gangsters.[6][7][8]

Government officials may demand bribes to look the other way or extort something of value from citizens or corporations in the form of a kickback. It need not always be money. A lucrative job after leaving office may have been in exchange for protection offered when in office. Payment may also show up indirectly in the form of a campaign contribution. Stopping governments agencies as a whole, and buying protection in the government is called regulatory capture.